Regional stock markets affected by Thai central bank's currency control measure

Stock markets throughout the region dropped after the Thai central bank announced yesterday that Thai banks shall lock up 30 percent of new foreign-currency deposits for a year to curb speculation. Overseas investors buying the baht will only be able to invest 70 percent of what they transfer and recoup all of their funds if they keep the money in Thailand for more than a year. Those who withdraw the reserved amount in less than a year will be fined 33 percent of that 30 percent portion.

In early morning trading today, the baht lost as much as 1.5 percent to 36.08 against the dollar; almost doubled yesterday's 0.8 percent drop. The benchmark Stock Exchange of Thailand index slid as much as 8.9 percent, the heaviest drop in more than three years.

Other regional markets were also affected, such as Singapore Straits Times (dropped 47.34 points), Hang Seng (dropped 226.18 points) and, obviously, the KLCI (dropped 18.58 points).

This move by the Thai central bank is likely to affect both new funds flowing into this region as well as causing some outflow of funds from this region. The short-term impact for Malaysia, which has only recently dismantled its capital control measures, is likely to be more severe than others.

The Thai central bank's move was intended to reduce excessive inflows, which has caused the baht to surge by 16 percent this year as overseas investors bought the nation's stocks. The rising baht has, however, hurt Thai exporters by cutting the value of their local currency-denominated profits and making their products more expensive compared with those of Asian rivals.